US markets, following the lead of markets in Asia and Europe, were battered during the lunch hour - usually a relatively quiet time for Wall Street - but staged a remarkable rally to close higher. The Dow, which had been vacillating around the no change line all morning, suddenly fell a full 50 points between 12:00 and 12:15 pm Eastern, with the other indices manifesting similar patterns.
The Dow would soon afterwards drop 130 points into the red, but around 1:00 began on a steady, miracle march higher which appeared out of nowhere, on no news, without reason. The rally led the indices into positive territory, though hardly enough to erase yesterday's battering or economic concerns.
Dow 12,133.40 +57.44; NASDAQ 2,371.74 +21.17; S&P 500 1,387.17 +9.22; NYSE Composite 8,958.60 +31.72
While overall breadth was positive, it was hardly so, with advancing issues beating decliners by about a 5-4 margin. What makes skeptics of analysts are days like today with numbers like this: New highs: 95; new lows: 266. That particular metric, which rolled over into the negative yesterday, is shouting out the direction of this market. Today's suspect rally notwithstanding, the market continues to drift lower as the housing market dries up and the US economy heads into a slow-growth (at best) period.
The sub-prime contagion has spread now into stocks beyond financials. Both H&R Block (HRB) and General Motors (GM) were beaten down early in the day by investors due to exposure concerns. Block, the nation's largest preparer of tax returns, also makes short-term, high-interest loans based on tax refunds while GM announced that they would spend up to $1 billion to cover losses by their part-owned GMAC lending arm.
H&R Block was down more than 1.5 points (>7%), but rallied sharply to end in the green. GM was down 91 cents before recovering to close -.26.
Much of today's trade was based on spin and speculation over the depth of the sub-prime problem, but moreso in anticipation of Friday's quadruple witching day, when index options, stock options, index futures, and single stock futures are set to expire. There was a higher than usual interest in arbitrage of stocks and futures today. Many were caught in a bear trap at midday as stocks sunk, then quickly rallied on short covering. It was a day-trader's day, for sure.
Some traders hunted and bagged what they consider bargains, though coming days may prove they were in the market prematurely. The Dow slipped below 12,000 briefly and that downdraft will no doubt be retested.
Oil bounced around all day, eventually closing up 23 cents to $58.16. Gold lost another 6.90, to end up at 642.50. Silver lost .13 to 12.83. Both precious metals are headed for bargain territory. Silver is just about at its interim support level, and a fall through $12.75 could spark further selling into the $10-12 level; gold may have further to fall, with support in the $600-625 range.
After today's spectacular trading range of nearly 200 points (almost 400 over the last three sessions), just about anything could happen on Thursday and Friday. Stay close to that trade button.
Wednesday, March 14, 2007
Tuesday, March 13, 2007
Sub-prime Submersion
As noted yesterday, dark clouds appeared over Wall Street in the form of defaulting sub-prime lenders, notably, New Century Financial (NEW), and sent the indices reeling on Tuesday.
New Century, which specialized in sub-prime mortgage loans, said on Monday that it may not be able to meet financial obligations of more than $8 billion. Trading on the shares were halted at 1.66 Monday, a loss of more than 96% from its high of 51.97, reached about a year ago. The stock briefly traded higher than 60 in December 2004. Trading continued to be suspended on the issue throughout Tuesday as the NYSE considered delisting and a criminal probe was initiated.
It was a truly horrible day to own stocks. The Dow, S&P, NASDAQ and NYSE Composite all opened lower and continued selling throughout the session, closing at or near the lows of the day.
Dow 12,075.96 -242.66; NASDAQ 2,350.57 -51.72; S&P 500 1,377.95 -28.65; NYSE Composite 8,926.28 -194.05
According to thestreet.com, shares of Bear Stearns (BSC), Lehman (LEH) and Morgan Stanley (MS) experienced losses of 6% or more on exposure to the bad debts of the beleaguered sub-prime market.
Apparently, the damage from mortgage defaults is more severe than those involved have been letting on. It's been suggested that as many as 25% of sub-prime mortgages initiated between 2003 and early 2006 - at the height of the real estate boom - may result in foreclosure and default.
The fault lies not only in the borrowers, whose desire to own an American home outstripped their ability to pay, but in the lenders, whose shady dealings and unethical practices put people who could scarcely afford them into homes with little or no down payment.
The terms of some of these loans are so onerous as to make normal lenders shriek with horror. Interest only loans with increasing principle were all the rage near the end of the boom. Another contributing factor was the rampant speculation on housing which pushed prices beyond normal affordability.
Real estate prices in some of the more overheated markets, such as Southern California, Washington, D.C., Boston and Florida, will take years to weed out the excesses. Homes that typically were selling in the range of 400,000-500,000 in 2005, today will fetch little more than half that amount, leaving many homeowners upside down - mortgage balances higher than the value of their homes. With unappetizing options of staying put and paying or selling at a loss, there are serious grumblings in suburbia.
Of course, with every loser there is a winner or two. Those homeowners who sold at the top of the market and downsized are likely ahead by tens of thousands of dollars. But there's little to no free cash floating around for investment in stocks, and that's crippling Wall Street today and will have a longer term affect as the housing bust deepens.
As this correction and mortgage blow-up extends, more days like this should be expected. Suburban middle and upper-middle class homeowners with little disposable income is not going to boost the economy. On the heels 4th quarter 2006 GDP growth of merely 2.2%, the 1st quarter of 2007 isn't shaping up to be much better. When economic indicators - like today's stalled retail numbers - begin to show little to no growth or outright declines, the other shoe shall have fallen.
Almost unnoticed amid the carnage was another decline in the price of oil, which lost 98 cents to close at $57.93, its lowest close in 3 weeks. Gold and silver continued their long, slow, clumsy, rangebound trade. Gold ended fixed at 649.40, -0.90. Silver ended the day at 12.96, a loss of 13 cents.
Declining issues outpaced advancing ones by a nearly 5-1 margin, while the measure of new highs to new lows flipped over, an ominous signal going forward. There were a combined 154 new highs to 225 new lows on the NYSE and NASDAQ.
New lows must reach a number beyond 350 before a bottom can even be considered close. We're not there yet. In fact, the Dow is still above the March 5 interim low of 12,039.11. There's more - probably much more - selling to come.
New Century, which specialized in sub-prime mortgage loans, said on Monday that it may not be able to meet financial obligations of more than $8 billion. Trading on the shares were halted at 1.66 Monday, a loss of more than 96% from its high of 51.97, reached about a year ago. The stock briefly traded higher than 60 in December 2004. Trading continued to be suspended on the issue throughout Tuesday as the NYSE considered delisting and a criminal probe was initiated.
It was a truly horrible day to own stocks. The Dow, S&P, NASDAQ and NYSE Composite all opened lower and continued selling throughout the session, closing at or near the lows of the day.
Dow 12,075.96 -242.66; NASDAQ 2,350.57 -51.72; S&P 500 1,377.95 -28.65; NYSE Composite 8,926.28 -194.05
According to thestreet.com, shares of Bear Stearns (BSC), Lehman (LEH) and Morgan Stanley (MS) experienced losses of 6% or more on exposure to the bad debts of the beleaguered sub-prime market.
Apparently, the damage from mortgage defaults is more severe than those involved have been letting on. It's been suggested that as many as 25% of sub-prime mortgages initiated between 2003 and early 2006 - at the height of the real estate boom - may result in foreclosure and default.
The fault lies not only in the borrowers, whose desire to own an American home outstripped their ability to pay, but in the lenders, whose shady dealings and unethical practices put people who could scarcely afford them into homes with little or no down payment.
The terms of some of these loans are so onerous as to make normal lenders shriek with horror. Interest only loans with increasing principle were all the rage near the end of the boom. Another contributing factor was the rampant speculation on housing which pushed prices beyond normal affordability.
Real estate prices in some of the more overheated markets, such as Southern California, Washington, D.C., Boston and Florida, will take years to weed out the excesses. Homes that typically were selling in the range of 400,000-500,000 in 2005, today will fetch little more than half that amount, leaving many homeowners upside down - mortgage balances higher than the value of their homes. With unappetizing options of staying put and paying or selling at a loss, there are serious grumblings in suburbia.
Of course, with every loser there is a winner or two. Those homeowners who sold at the top of the market and downsized are likely ahead by tens of thousands of dollars. But there's little to no free cash floating around for investment in stocks, and that's crippling Wall Street today and will have a longer term affect as the housing bust deepens.
As this correction and mortgage blow-up extends, more days like this should be expected. Suburban middle and upper-middle class homeowners with little disposable income is not going to boost the economy. On the heels 4th quarter 2006 GDP growth of merely 2.2%, the 1st quarter of 2007 isn't shaping up to be much better. When economic indicators - like today's stalled retail numbers - begin to show little to no growth or outright declines, the other shoe shall have fallen.
Almost unnoticed amid the carnage was another decline in the price of oil, which lost 98 cents to close at $57.93, its lowest close in 3 weeks. Gold and silver continued their long, slow, clumsy, rangebound trade. Gold ended fixed at 649.40, -0.90. Silver ended the day at 12.96, a loss of 13 cents.
Declining issues outpaced advancing ones by a nearly 5-1 margin, while the measure of new highs to new lows flipped over, an ominous signal going forward. There were a combined 154 new highs to 225 new lows on the NYSE and NASDAQ.
New lows must reach a number beyond 350 before a bottom can even be considered close. We're not there yet. In fact, the Dow is still above the March 5 interim low of 12,039.11. There's more - probably much more - selling to come.
Monday, March 12, 2007
Three in a Row for the Dow, but Trouble is Brewing
Could the markets be on to something? The Dow Jones Industrials rose for the third consecutive session on Monday, adding 42 points and with that, completing a 2% gain off the lows of last week.
Dow 12,318.62 +42.30; NASDAQ 2,402.29 +14.74; S&P 500 1,406.60 +3.75; NYSE Composite 9,120.93 +25.94
As we see from the numbers above, the other indices tagged along for the ride. And what a nice ride it was, though most investors thought better of it. To say that the volume was thin would be overstating the case. Especially on the NASDAQ, it was nothing short of anemic.
But the markets made the best of it, putting on the bravest of brave faces and likely cheering the drop in the price of oil, which fell 1.14 to $58.91, a welcome number for anyone who owns (or is paying off a 6-year loan on) a car.
In the absence of any noteworthy news, little things could make a huge difference in this directionless market. Some of the smallest things are little movements in interest rates, which are heading higher thanks no doubt to the seeming end of easy money, particularly in the mortgage arena. There, a company called New Century Financial Corp. is about to go completely belly up, taking down $8 billion in bad money with it.
What worries Wall Street is that New Century's collapse could cause a tsunami in financial markets. The company specialized in sub-prime loans, or more succinctly, mortgage loans to people who probably shouldn't have them. CNNMoney has a good article on the subject.
New Century originated many of these sub-prime loans, packaged them up and resold them to other willing buyers on Wall Street. Among the companies with financial agreements with New Century are some which should know better, like Morgan Stanley, Credit Suisse, Goldman Sachs and others. These giants will be able to absorb whatever shock might occur in a default or bankruptcy by New Century, which seems all but certain, but the damage will spread.
Lenders will tighten up requirements for home buyers, interest rates may hitch up a bit, people get worried and everyone goes home losers. At a time when the economy is cooling off to a significant degree, the last thing the suits on Wall Street need is a soft real estate market, rising interest rates and sour-pussed bankers.
There's a bit of unraveling about to happen and it will only fuel selling into an already unsteady market. Get ready for another 3-4% decline on the major indices over the next few weeks. I've said it was coming and here it is, on a silver sub-prime platter.
Dow 12,318.62 +42.30; NASDAQ 2,402.29 +14.74; S&P 500 1,406.60 +3.75; NYSE Composite 9,120.93 +25.94
As we see from the numbers above, the other indices tagged along for the ride. And what a nice ride it was, though most investors thought better of it. To say that the volume was thin would be overstating the case. Especially on the NASDAQ, it was nothing short of anemic.
But the markets made the best of it, putting on the bravest of brave faces and likely cheering the drop in the price of oil, which fell 1.14 to $58.91, a welcome number for anyone who owns (or is paying off a 6-year loan on) a car.
In the absence of any noteworthy news, little things could make a huge difference in this directionless market. Some of the smallest things are little movements in interest rates, which are heading higher thanks no doubt to the seeming end of easy money, particularly in the mortgage arena. There, a company called New Century Financial Corp. is about to go completely belly up, taking down $8 billion in bad money with it.
What worries Wall Street is that New Century's collapse could cause a tsunami in financial markets. The company specialized in sub-prime loans, or more succinctly, mortgage loans to people who probably shouldn't have them. CNNMoney has a good article on the subject.
New Century originated many of these sub-prime loans, packaged them up and resold them to other willing buyers on Wall Street. Among the companies with financial agreements with New Century are some which should know better, like Morgan Stanley, Credit Suisse, Goldman Sachs and others. These giants will be able to absorb whatever shock might occur in a default or bankruptcy by New Century, which seems all but certain, but the damage will spread.
Lenders will tighten up requirements for home buyers, interest rates may hitch up a bit, people get worried and everyone goes home losers. At a time when the economy is cooling off to a significant degree, the last thing the suits on Wall Street need is a soft real estate market, rising interest rates and sour-pussed bankers.
There's a bit of unraveling about to happen and it will only fuel selling into an already unsteady market. Get ready for another 3-4% decline on the major indices over the next few weeks. I've said it was coming and here it is, on a silver sub-prime platter.
Saturday, March 10, 2007
Much Ado About Nothing
Friday's lackluster employment report contributed to a day of see-sawing on the major exchanges and fairly flat results. The report came in just below expectations of 100,000 new jobs and the market was unimpressed overall.
Dow 12,276.32 +15.62; NASDAQ 2,387.55 -0.18; S&P 500 1,402.85 +0.96; NYSE Composite 9,094.88 +16.34
Traders chose to wait until Monday to seek direction and clues, though March is more a month in which more people watch college basketball than the Big Board and little economic news is on the horizon. The markets will have to fend for themselves for most of the week, as PPI and CPI figures won't be out until Thursday and Friday, which is also a triple-witching day.
Oil took a welcome dip of -1.59 to close out the week at 60.05/bbl., but not even that welcome news was enough to spark the indices, a troubling sign for equities.
Gold and silver were also marginally lower. Monday and Tuesday could become volatile should any direction be ascertained. Stay tuned and close to the trade button.
Dow 12,276.32 +15.62; NASDAQ 2,387.55 -0.18; S&P 500 1,402.85 +0.96; NYSE Composite 9,094.88 +16.34
Traders chose to wait until Monday to seek direction and clues, though March is more a month in which more people watch college basketball than the Big Board and little economic news is on the horizon. The markets will have to fend for themselves for most of the week, as PPI and CPI figures won't be out until Thursday and Friday, which is also a triple-witching day.
Oil took a welcome dip of -1.59 to close out the week at 60.05/bbl., but not even that welcome news was enough to spark the indices, a troubling sign for equities.
Gold and silver were also marginally lower. Monday and Tuesday could become volatile should any direction be ascertained. Stay tuned and close to the trade button.
Thursday, March 8, 2007
One for the Bulls
Thursday will look like a fairly positive day on paper, but without the assistance of a daily chart, one would never know what really happened. The markets generally behaved just as the Dow did, gapping higher at the open then settling into a narrow 30-40 point range before selling off on heavy volume in the last 1 1/2 hours.
It appeared to be organized buying by the brokerages without much outside interest.
The upside trade was more pronounced on the NYSE than on the NASDAQ, where advancers beat decliners by a 3-1 margin. On the NASDAQ it was only 3-2. Still, the numbers look fairly solid all around. New highs outnumbered new lows 177-104.
Any hesitancy was likely attributable to tomorrow's much-anticipated monthly non-farm employment data for February. Investors stood pat rather than placing serious bets. With tomorrow being the end of the week, traders may not be ready to jump into what's still a troubled scenario. The wounds from last Tuesday's near-meltdown are still fresh.
Dow 12,260.70 +68.25; NASDAQ 2,387.73 +13.09; S&P 500 1,401.89 +9.92; NYSE Composite 9078.65 +79.45
It's worth remembering that today's higher close was only the third in the last 12 sessions. That little nugget is still firmly planted in the back of many a trader's brain. The markets will need a number of consecutive trading days or a test of resistance around the 12,350 range or both before confidence is restored.
With no support in this range, the next congestion point is likely to be around 11,450-11,500, which is why anyone with an eye for charts is a little worried. There's no support between here and there.
The good news for US equities is that foreign markets were also higher on the day. The bad news is that everybody would like to play follow the leader, but haven't yet determined who's leading.
Oil, gold and silver barely budged, though oil was slightly lower while the metals were up, an encouraging sign.
Tomorrow will be important not only for the labor news but whether the markets can string two winning days together.
It appeared to be organized buying by the brokerages without much outside interest.
The upside trade was more pronounced on the NYSE than on the NASDAQ, where advancers beat decliners by a 3-1 margin. On the NASDAQ it was only 3-2. Still, the numbers look fairly solid all around. New highs outnumbered new lows 177-104.
Any hesitancy was likely attributable to tomorrow's much-anticipated monthly non-farm employment data for February. Investors stood pat rather than placing serious bets. With tomorrow being the end of the week, traders may not be ready to jump into what's still a troubled scenario. The wounds from last Tuesday's near-meltdown are still fresh.
Dow 12,260.70 +68.25; NASDAQ 2,387.73 +13.09; S&P 500 1,401.89 +9.92; NYSE Composite 9078.65 +79.45
It's worth remembering that today's higher close was only the third in the last 12 sessions. That little nugget is still firmly planted in the back of many a trader's brain. The markets will need a number of consecutive trading days or a test of resistance around the 12,350 range or both before confidence is restored.
With no support in this range, the next congestion point is likely to be around 11,450-11,500, which is why anyone with an eye for charts is a little worried. There's no support between here and there.
The good news for US equities is that foreign markets were also higher on the day. The bad news is that everybody would like to play follow the leader, but haven't yet determined who's leading.
Oil, gold and silver barely budged, though oil was slightly lower while the metals were up, an encouraging sign.
Tomorrow will be important not only for the labor news but whether the markets can string two winning days together.
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